Sears Holdings Reports Third Quarter Results

Sears Holdings Corporation (NASDAQ: SHLD) ("Holdings," "we," "us," "our" or the "Company") today reported net income of $2 million, or $0.01 per diluted share, for the third quarter ended November 3, 2007, compared with net income of $196 million, or $1.27 per diluted share, for the third quarter ended October 28, 2006. The third quarter 2006 results included $101 million in pre-tax gains ($64 million after tax or $0.42 per diluted share) on total return swap investments outstanding during that period. Excluding these gains, earnings per diluted share were $0.85 for the third quarter of fiscal 2006. The year-over-year decline in income is primarily the result of a $223 million decline in gross margin, reflecting both sales declines, as well as an overall decline in our gross margin rate for the quarter.

"We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so," said Aylwin Lewis, Sears Holdings' chief executive officer and president. "Nevertheless, the Company continues to generate cash, and we continue to invest in our customer relationships, our multi-channel experience, and our information technology systems. Importantly, we believe that our stores and websites are ready to serve our customers and provide them more reasons to shop with us."

Revenues and Comparable Store Sales

Sears Domestic's comparable store sales declined 4.2% for the quarter, while Kmart's comparable store sales declined 5.0%. Total domestic comparable store sales declined 4.6%. We experienced lower sales across most merchandise categories at both Kmart and Sears Domestic, with notable declines in apparel and lawn and garden at both formats, partially offset by increased sales within home electronics, notably at Sears Domestic. We believe the overall comparable store sales results reflect increased competition, the negative impact of unfavorable economic conditions, such as a weak housing market and growing consumer credit concerns, as well as the unfavorable impact of unseasonably warm weather, prevalent during much of the third quarter, on sales of apparel and other seasonal merchandise. For the quarter, our total revenues declined $0.4 billion to $11.5 billion in fiscal 2007, as compared to $11.9 billion for the third quarter of fiscal 2006.

For our fiscal November month-to-date period (Sunday, November 4, 2007 through Tuesday, November 27, 2007), our domestic comparable store sales have declined 0.4%, with Sears Domestic's comparable store sales increasing 1.9% and Kmart's comparable store sales declining 3.3%. While we have experienced higher sales at Sears Domestic for this period, the increase in comparable store sales was driven by sales of home electronics which generally have a lower margin rate than other categories.

Operating Income

Our operating income for the quarter decreased $230 million to $46 million in fiscal 2007, as compared to $276 million in the third quarter of fiscal 2006, mainly due to lower gross margin generated at both Kmart and Sears Domestic. For the quarter, we generated $3.2 billion in total gross margin as compared to $3.4 billion in the third quarter last year. The $0.2 billion decline was made up of separate $0.1 billion declines at both Kmart and Sears Domestic. Our gross margin rate decreased by approximately 90 basis points to 27.4% and was impacted by incremental markdowns taken to clear seasonal merchandise and higher inventory levels due to lower sales. Given that we do not expect any significant near-term improvement in the overall retail environment, we believe that our sales and gross margin for the balance of fiscal 2007 will likely continue to be pressured by the above-noted unfavorable economic factors.

Financial Position

We had cash and cash equivalents of $1.5 billion at November 3, 2007 (of which $0.8 billion was domestic and $0.7 billion was at Sears Canada) as compared to $2.1 billion at October 28, 2006 and $4.0 billion at February 3, 2007. During the third quarter, cash and cash equivalents declined $1.1 billion from the $2.6 billion balance at the end of the second quarter. The $1.1 billion net decline in cash and cash equivalents for the quarter primarily reflects $0.9 billion used for share repurchases (as detailed below) and $0.9 billion used to build inventories for the holiday selling season (net of merchandise payables), partially offset by $0.6 billion of cash generated through short-term borrowings. The $0.6 billion in short-term borrowings under our five-year revolving credit facility has been repaid as of November 27, 2007.

Merchandise inventories at November 3, 2007 were $12.0 billion, as compared to $11.5 billion as of October 28, 2006. The increase reflects the addition of $0.2 billion of previously consigned pharmacy inventory, an increase in Sears Canada inventory primarily due to the change in exchange rates, increased home electronics inventory at Sears Domestic and the effect of lower than expected sales levels. As we expect difficult economic conditions to persist in the near term, we intend to manage our inventories in the fourth quarter with the goal of reducing our fiscal year-end domestic merchandise inventories to levels below last year-end's levels.

Share Repurchase

We repurchased 6.7 million common shares at a total cost of $0.9 billion (or $131.72 per share) under our share repurchase program during the third quarter of fiscal 2007. As previously announced on August 13, 2007, our Board of Directors approved the repurchase of up to an additional $1.5 billion of our common shares. The share repurchases may be implemented using a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods. Timing will be dependent on prevailing market conditions, alternative uses of capital and other factors. As of November 27, 2007, we had remaining authorization to repurchase $736 million of common shares under the share repurchase program.

Adjusted EBITDA

For purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement computed as operating income appearing on the statement of income less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude certain nonrecurring gains/(losses) and restructuring charges. Adjusted EBITDA is used by management to evaluate the operating performance of our businesses for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing our businesses.

While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

  --  EBITDA excludes the effects of financing and investing activities by
      eliminating the effects of interest and depreciation costs;
  --  Management considers gains/(losses) on the sale of assets to result
      from investing decisions rather than ongoing operations; and
  --  Restructuring activities and other significant items, while
      periodically affecting our results, may vary significantly from period
      to period and have a disproportionate effect in a given period, which
      affects the comparability of results;



  Adjusted EBITDA was determined as follows:

                              13 Weeks Ended            39 Weeks Ended
                         November 3,   October 28,  November 3,  October 28,
                             2007        2006          2007        2006
  Operating income per
   statement of income         $46       $276          $778     $1,124
  Plus depreciation and
   amortization                255        278           779        843
  Less gain on sale of assets   --         (8)          (10)       (32)
  Before excluded items        301        546         1,547      1,935

  Sears Canada
   post-retirement benefit
   plans curtailment gain       --         --           (27)        --
  Hurricane related
   recoveries                   (1)        --           (19)        --
  Vice Chairman separation
   expense                      --         --            --          8
  Visa/MasterCard settlement    --         --            --        (36)
  Restructuring charges         --          4            --         27
  Adjusted EBITDA as defined  $300       $550        $1,501     $1,934
  % to revenues               2.6%       4.6%          4.2%       5.3%



Adjusted EBITDA for our domestic (United States operations) and Sears Canada operations are as follows:

                                           13 Weeks Ended
                            Adjusted EBITDA             % To Revenues
                       November 3,   October 28,   November 3,   October 28,
                          2007          2006          2007          2006

  Domestic operations     $197          $439          1.9 %         4.1 %
  Sears Canada             103           111          7.9 %         8.9 %
  Adjusted EBITDA         $300          $550          2.6 %         4.6 %


                                           39 Weeks Ended
                            Adjusted EBITDA             % To Revenues
                       November 3,   October 28,   November 3,   October 28,
                          2007          2006          2007         2006

  Domestic operations   $1,244        $1,692          3.9 %         5.1 %
  Sears Canada             257           242          7.1 %         6.8 %
  Adjusted EBITDA       $1,501        $1,934          4.2 %         5.3 %




  Quarterly Report on Form 10-Q

We plan to file our Quarterly Report on Form 10-Q for the third quarter 2007 with the SEC on November 30, 2007.

Forward-Looking Statements

Results are unaudited. This press release contains forward-looking statements about our expectations. Forward-looking statements are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Risks and uncertainties include the possibility that we fail to offer products and services that satisfy the desires of our customers, whose preferences may change in the future, or other factors outside the control of Holdings. Actual results may differ materially from those set forth in the forward-looking statements. We intend the forward-looking statements to speak only as of the time made and does not undertake to update or revise them as more information becomes available.

About Sears Holdings Corporation

Sears Holdings Corporation is the nation's fourth largest broadline retailer, with over $50 billion in annual revenues, and approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. We also have Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. We are the nation's largest provider of home services, with more than 13 million service calls made annually. For more information, visit Sears Holdings' website at http://www.searsholdings.com/.

                           Sears Holdings Corporation
                  Condensed Consolidated Statements of Income
                                  (Unaudited)

                                  13 Weeks Ended          39 Weeks Ended
                             November 3, October 28, November 3, October 28,
    millions, except per        2007        2006         2007        2006
     share data

  REVENUES
    Merchandise sales and
     services                  $11,548      $11,941      $35,489    $36,724

  COSTS AND EXPENSES
    Cost of sales, buying and
     occupancy                   8,387        8,557       25,649     26,380
    Gross margin dollars         3,161        3,384        9,840     10,344
    Gross margin rate            27.4%        28.3%        27.7%      28.2%

    Selling and administrative   2,860        2,834        8,293      8,382
    Selling and administrative
     expense as a percentage of
     total revenues              24.8%        23.7%        23.4%      22.8%

    Depreciation and
     amortization                  255          278          779        843
    Gain on sales of assets          -           (8)         (10)       (32)
    Restructuring charges            -            4            -         27
      Total costs and expenses  11,502       11,665       34,711     35,600

  Operating income                  46          276          778      1,124
  Interest and investment income   (30)        (140)        (112)      (241)
  Interest expense                  66           89          210        255
  Other income                      (1)           -          (17)       (15)

  Income before income taxes and
   minority interest                11          327          697      1,125
  Income taxes (benefit) expense    (5)         119          267        438
  Minority interest                 14          12            36         17

  NET INCOME                        $2        $196          $394       $670

  EARNINGS PER COMMON SHARE
    Diluted earnings per share   $0.01       $1.27         $2.66      $4.29

    Diluted weighted average
     common shares outstanding   139.9       154.4         148.2      156.3



                         Sears Holdings Corporation
                    Condensed Consolidated Balance Sheets

                                              (Unaudited)
  millions                              November 3,  October 28, February 3,
                                            2007         2006       2007
  ASSETS
  Current assets
    Cash and cash equivalents              $1,475       $2,096     $3,968
    Receivables                               963          909        847
    Merchandise inventories                12,030       11,508      9,907
    Other current assets                      717          902        684
    Total current assets                   15,185       15,415     15,406

  Property and equipment, net               8,855        9,247      9,132
  Goodwill                                  1,691        1,880      1,692
  Tradenames and other intangible assets    3,370        3,467      3,437
  Other assets                                467          460        399
    TOTAL ASSETS                          $29,568      $30,469    $30,066

  LIABILITIES
  Current liabilities
    Short-term borrowings and current
     portion of long-term debt             $1,374         $618       $707
    Merchandise payables                    4,437        4,195      3,312
    Unearned revenues                       1,126        1,078      1,073
    Other current liabilities               4,389        5,098      4,960
    Total current liabilities              11,326       10,989     10,052

  Long-term debt and capitalized lease
   obligations                              2,643        2,914      2,849
  Pension and postretirement benefits       1,414        2,092      1,648
  Minority interest and other
   liabilities                              3,471        2,850      2,803
    Total Liabilities                      18,854       18,845     17,352

    Total Shareholders' Equity             10,714       11,624     12,714

    TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY                 $29,568      $30,469    $30,066

  Total common shares outstanding           137.7        153.9      153.8



                          Sears Holdings Corporation
                               Segment Results
                                 (Unaudited)

                                          13 Weeks Ended November 3, 2007
  millions
                                                       Sears         Sears
                                         Kmart  Domestic  Canada   Holdings

  Merchandise sales and services         $3,803   $6,449   $1,296   $11,548

  Cost of sales, buying and occupancy     2,979    4,519      889     8,387
  Gross margin dollars                      824    1,930      407     3,161
  Gross margin rate                       21.7%    29.9%    31.4%     27.4%

  Selling and administrative                855    1,701      304     2,860
  Selling and administrative expense as
   a percentage of total revenues         22.5%    26.4%    23.5%     24.8%
  Depreciation and amortization              28      193       34       255
  Total costs and expenses                3,862    6,413    1,227    11,502
  Operating (loss) income                  $(59)     $36      $69       $46

  Number of:
    Kmart Stores                          1,387        -        -     1,387
    Full-Line Stores                          -      934      123     1,057
    Specialty Stores                          -    1,124      255     1,379
    Total Stores                          1,387    2,058      378     3,823



                                           13 Weeks Ended October 28, 2006
  millions
                                                         Sears       Sears
                                           Kmart  Domestic  Canada Holdings

  Merchandise sales and services           $4,042   $6,655  $1,244  $11,941

  Cost of sales, buying and occupancy       3,096    4,611     850    8,557
  Gross margin dollars                        946    2,044     394    3,384
  Gross margin rate                         23.4%    30.7%   31.7%    28.3%

  Selling and administrative                  889    1,662     283    2,834
  Selling and administrative expense as a
   percentage of total revenues             22.0%    25.0%   22.7%    23.7%
  Depreciation and amortization                22      223      33      278
  (Gain) loss on sales of assets               (9)       1       -       (8)
  Restructuring charges                         4        -       -        4
  Total costs and expenses                  4,002    6,497   1,166   11,665
  Operating income                            $40     $158     $78     $276

  Number of:
    Kmart Stores                            1,394        -       -    1,394
    Full-Line Stores                            -      933     123    1,056
    Specialty Stores                            -    1,083     252    1,335
    Total Stores                            1,394    2,016     375    3,785



                                           39 Weeks Ended November 3, 2007
  millions
                                                         Sears        Sears
                                           Kmart  Domestic  Canada  Holdings

  Merchandise sales and services          $12,046  $19,815  $3,628  $35,489

  Cost of sales, buying and occupancy       9,237   13,884   2,528   25,649
  Gross margin dollars                      2,809    5,931   1,100    9,840
  Gross margin rate                         23.3%    29.9%   30.3%    27.7%

  Selling and administrative                2,564    4,913     816    8,293
  Selling and administrative expense as a
   percentage of total revenues             21.3%    24.8%   22.5%    23.4%
  Depreciation and amortization                81      601      97      779
  Gain on sales of assets                      (1)      (1)     (8)     (10)
  Total costs and expenses                 11,881   19,397   3,433   34,711
  Operating income                           $165     $418    $195     $778

  Number of:
    Kmart Stores                            1,387        -       -    1,387
    Full-Line Stores                            -      934     123    1,057
    Specialty Stores                            -    1,124     255    1,379
    Total Stores                            1,387    2,058     378    3,823



                                           39 Weeks Ended October 28, 2006
  millions
                                                         Sears        Sears
                                           Kmart  Domestic  Canada  Holdings

  Merchandise sales and services          $12,768  $20,403  $3,553  $36,724

  Cost of sales, buying and occupancy       9,726   14,156   2,498   26,380
  Gross margin dollars                      3,042    6,247   1,055   10,344
  Gross margin rate                         23.8%    30.6%   29.7%    28.2%

  Selling and administrative                2,618    4,951     813    8,382
  Selling and administrative expense as a
   percentage of total revenues             20.5%    24.3%   22.9%    22.8%
  Depreciation and amortization                55      687     101      843
  Gain on sales of assets                     (26)      (6)      -      (32)
  Restructuring charges                         8        -      19       27
  Total costs and expenses                 12,381   19,788   3,431   35,600
  Operating income                           $387     $615    $122   $1,124

  Number of:
    Kmart Stores                            1,394        -       -    1,394
    Full-Line Stores                            -      933     123    1,056
    Specialty Stores                            -    1,083     252    1,335
    Total Stores                            1,394    2,016     375    3,785




                        Sears Holdings Corporation
                             Adjusted EBITDA

                                          13 Weeks Ended
  millions                  November 3, 2007          October 28, 2006
                       Domestic   Sears   Sears   Domestic  Sears   Sears
                      Operations Canada Holdings Operations Canada Holdings

  Operating income
   per statement
   of income             $(23)     $69     $46      $198      $78    $276
  Plus depreciation
   and amortization       221       34     255       245       33     278
  Less gain on sale of
   assets                   -        -       -        (8)       -      (8)
  Before excluded items    198     103     301       435      111     546

  Hurricane related
   recoveries               (1)      -      (1)        -        -       -
  Restructuring charges      -       -       -         4        -       4
  Adjusted EBITDA as
   defined                 $197   $103    $300      $439     $111    $550
  % to  revenues           1.9%   7.9%    2.6%      4.1%     8.9%    4.6%



                                          39 Weeks Ended
  millions                  November 3, 2007          October 28, 2006
                       Domestic   Sears   Sears   Domestic  Sears   Sears
                      Operations Canada Holdings Operations Canada Holdings

  Operating income
   per statement
   of income               $583   $195    $778    $1,002     $122  $1,124
  Plus depreciation and
   amortization             682     97     779       742      101     843
  Less gain on sale
   of assets                 (2)    (8)    (10)      (32)       -     (32)
  Before excluded items   1,263    284   1,547     1,712      223   1,935

  Sears Canada
   post-retirement
   benefit plans
   curtailment gain           -    (27)    (27)        -        -       -
  Hurricane related
   recoveries               (19)     -     (19)        -        -       -
  Vice Chairman separation
   expense                    -      -       -         8        -       8
  Visa/MasterCard settlement  -      -       -       (36)       -     (36)
  Restructuring charges       -      -       -         8       19      27
  Adjusted EBITDA as
   defined               $1,244   $257  $1,501    $1,692     $242  $1,934
  % to  revenues           3.9%   7.1%    4.2%      5.1%     6.8%    5.3%

First Call Analyst:
FCMN Contact:

SOURCE: Sears Holdings Corporation

CONTACT: Sears Holdings Public Relations, +1-847-286-8371

Web site: http://www.searsholdings.com/








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